See Naples and buy
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See Naples and buy

In the west, shrinking government, and regions competing for funds under the euro; in the east, a need to upgrade infrastructure and outshine the sovereign credit. The emerging European municipal bond market looks more attractive than bank debt. Marcus Walker reports.

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Europe's heads of debt origination can't agree on whether a significant new class of borrowers is emerging. But the figures show that city and regional governments Europe-wide are turning increasingly to international investors for finance.

Municipal treasurers have discovered the roadshow, the yankee bond, and the Eurobond market. In 1990, just one local authority in the whole of Europe issued an internationally targeted bond: the German state of Baden-Württemberg, with a Dm300 million, six-year reverse floater. In 1997, municipalities and regions from seven countries made 18 international issues totalling $8.88 billion in value. There have already been 17 issues in 1998, despite the turmoil in many bond markets.

Regular names in the marketplace include Vienna, the Île-de-France, and the Basque country; newcomers in the last couple of years include Naples, Lazio, and the capital cities of Europe's emerging markets. Although the financial crises afflicting Russia and Asia have scuppered plans for further issues by central and east European municipalities, their pressing investment needs will bring them back when the markets calm down. In western Europe, the euro and other aspects of European integration will accelerate sub-national level governments' use of capital markets.

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